Should Value Investors Warm Up to Solar Stocks?

Are solar stocks long-term value plays? Will the sun stop shining? You be the judge.

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Investors are yet again taking a shine to solar stocks. Even with an overall drop in the industry in 2011, long-term investors are looking to solar panel technology. Capital expenditures on new solar equipment is projected to rise 30% next year to around $3 billion, and demand forecasts have surged.

But questions remain as to whether companies will actually benefit. Some big-name players have gone bankrupt in recent years (Solyndra, anyone?) while other companies are struggling with dismal balance sheets. The future could still be bright, if investors proceed cautiously.

Canadian Solar, Inc. (NASDAQ:CSIQ) has provided great returns so far this year and closed Wednesday at a new 52-week high. Analysts have reported strong earnings growth for next year, but the company is highly leveraged, which could cause problems in the future.

First Solar (NASDAQ:FSLR) is a more established player with a strong balance sheet that could help in the event of another downturn in the industry. First Solar has also been focused on emerging markets. And while other companies are struggling paying down debt, First Solar is leading the charge towards growth.

Another company on our firm's list is SunPower (NASDAQ:SPWR), a potential growth company with a current ratio of 1.60, stronger than others in the sector. While earnings took a beating in the past year due to oversupply, SunPower has been able to reverse the trend and inch back toward positive cash flow.

The solar industry is a difficult one to gauge. The technology is still new and competes with many other alternative energy sources. Breakthroughs in technology in the near future may help investors judge which companies will last. For now, considering all fundamentals and product pipelines can help inform investment decisions.

Editor's note: This story by Antonio Alfonso originally appeared on Kapitall.

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